Broker-dealers have been engaging in sales practices for structured securities products that hurt retail investors, according to a Securities and Exchange Commission report recently released.
In sweep examinations of 11 broker-dealers, the SEC found that the firms may have steered clients into the complex products even though they were not suitable for their portfolios.
The SEC also noted instances where broker-dealers charged prices that were too high, did not adequately disclose risks related to them and misrepresented them on customer account statements.
The agency recommended that broker-dealers improve disclosure about structured securities products, establish procedures and controls to prevent abuses in the secondary market and conduct specialized training for their representatives who sell the instruments.
Structured securities products are derivatives whose value is based on other securities, baskets of indexes, options, commodities, debt issuances and foreign securities. Sales to retail investors rose to $45 billion in 2010 from $34 billion in 2009, as customers have been seeking higher returns in a market characterized by low interest rates and uneven growth.
One of the riskiest structured products, according to the SEC report, is a reverse convertible note, which is a security with an embedded put option.
The SEC report follows a recent warning to investors from the Financial Industry Regulatory Authority Inc. to be careful when considering the purchase of complex investment products.
Although the report does point out deficiencies in sales practices for structured instruments, it doesn’t indicate the scope of the problem.
If you have questions about a structured product or reverse convertible note sold to you by your financial professional, the securities attorneys of The White Law Group may be able to help. For a free consultation, please contact The White Law Group at 312-238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.